Australia's Kyoto target practice

Given emissions have risen, there is little to cheer in Australia likely hitting its 2012 Kyoto Protocol target. Now the real challenge for a new industrial revolution begins.

The recent announcement that Australia is on track to meet its Kyoto Protocol target for greenhouse gas emissions is an indication of satisfactory performance, not an exemplary outcome. The target is 108 per cent of 1990 emissions over 2008-2012; that is, an actual increase in emissions.

Indeed, Australia was particularly astute in international negotiations to obtain this target, based on the argument that our economy was highly dependent on coal. It still is. So the Kyoto target, which is a bit of a ‘straw man’, is almost certainly going to be achieved. No big deal.

What is far more important is the future. The long-term target (2050) is a de-carbonisation of the Australian economy. This requires a new industrial revolution; a revolution in the way the economy actually operates.

It is instructive to look at the electricity generating sector. It is where the major greenhouse gas polluters are. Australia is massively dependent on coal-fired generation (more than 76 per cent of electricity is generated this way – see Table 1). By 2050 we will need to have moved to some form of clean energy generation. What technologies are on the horizon?

Source

Proportion (%)

Coal

76.7

Oil

1.0

Gas

15.0

Hydroelectricity

4.7

Wind

1.5

Other

1.2

Source: ABARE

Which renewable technologies are ready to step up?

In terms of cost, the best non-polluting technology is wind power. Much higher-cost technologies include solar.

As you examine costs, the important issue to bear in mind is that there are low costs per unit of electricity in currently existing plant. This means that until such plant physically deteriorates (possibly in decades), it will take a large cost incentive or restrictive government policy to get generators to move out of electricity generation using coal.

If you compare wind with coal in the generation of new capacity, then wind is becoming comparable with coal on costs. Wind does have the advantage that it is a zero-emitting technology.

Some question marks have been raised about the ability of wind power to meet base load. The argument runs that it is easy to store a stack of coal for base load in coal-fired generation, but how do you store wind?

However, the Australian continent is large, and we need to take advantage of this. There will be usable wind somewhere at all times. The problem in tapping this capacity is the problem of the lack of connectivity in the electricity grid. If this was overcome, then perhaps 25 per cent of base load could come from wind (which would allow a much higher proportion of overall generating capacity).

A major disadvantage with wind power is that we are starting from a low base in terms of the proportion of capacity that it generates. It will take a number of years to move from the current less-than-2 per cent of generating capacity to the levels required to make wind a major component.

Building a system that supports lower emissions

This raises the question of whether the proposed ‘carbon tax’ pricing regime in Australia – $23/tonne CO₂ equivalent – will provide the incentive. The estimates that have been made suggest that this will be unlikely, by itself, to bring about the radical changes that are required. Eventually, stronger policy will almost certainly be required, probably in the form of regulation, as an extension to the current requirements that electricity retailers and generators employ a larger proportion of non-polluting technology. Unfortunately, the natural progression from a concern about greenhouse gas emission is to move to a discussion, like the above, about changing the technology that produced the emissions. What has been left out is the demand side of the equation.

Much could be said about this. Suffice it to say here that most households and many businesses could cut their electricity consumption significantly, without any loss in their level of satisfaction (for households) or output (for businesses). Technologies like smart metering, and peak-load pricing can assist us with this. But of course the suppliers of electricity have little interest in such reductions in consumption.

This type of discussion can raise concerns that the implied costs to us all are catastrophic. The media will likely paint things that way. In fact, all the economic analysis done to date suggests that the costs will be small as long as we start the de-carbonisation now. Treasury projections suggest that by 2050 our average income will have risen from about $60,000 to $90,000 (both in dollar values of today) if the world achieves de-carbonisation. Who knows what it might be if we don’t.

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